Do You Have the Accounts You Need?

Chances are pretty good that you already have savings and checking accounts. You've probably been writing checks for years for things such as books and rent, or maybe by now you're paying all your bills online. You probably use a debit card, too.

Show Me the Money

You use debit cards, which look like credit cards, to pay for purchases, but the money comes out of your checking account. Debit cards give you the best of both worlds: You get the convenience of a credit card without putting yourself in debt. An ATM card may or may not be a debit card. An ATM card accesses your account through an ATM machine. A debit card accesses your account from almost anywhere.

Of course, there's the possibility that you've managed to get through life so far without checking and savings accounts. If that's the case, it's time to get them established. If you already have accounts, it's time to take a good look at them to see if you're getting the best deal that you can.

Checking Accounts

The concept of a checking account is simple. You keep money in an account and write checks (or use a debit card) from that account instead of paying with cash. Using checks eliminates the need to carry large amounts of cash or send cash through the mail to pay bills.

There are various kinds of checking accounts. A few pay interest (although none pay very much), while nearly all banks impose various fees and conditions. Some charge you a monthly fee if your balance falls below a minimum amount. Some charge you fees to open the account. Some charge you for each check you write, and others charge you if you write more than a certain number of checks each month. You get the idea.

It pays to look at some different banks when you're considering opening or changing a checking account, because the difference in fees and conditions imposed can be significant. According to Bankrate.com, which studies and reports on what's happening in banking around the country, fees keep going up, while interest rates (on the ac-counts that still offer them) are practically nonexistent.

Money Pit

Just like lunch, there is no free checking. Be careful when you see a bank that offers “free checking” when you open several accounts there. You could end up paying more fees on the other accounts or losing out on higher interest rates you could get from another bank.

Pocket Change

The average interest paid on checking accounts these days is way below 1 percent. In fact, it's way below half a percent, according to www.bankrate.com.

If you're just getting around to opening a checking account, take a few minutes to think about how you'll use it. For instance, if you write only three checks a month—one to your landlord, one to pay your Visa bill, and one for your college loan—you may do well to consider an account that includes a charge for each check written. Your fee would be minimal, and there could be benefits elsewhere that offset the per-check fee. Many financial institutions provide extra services or waive the fee for minimum deposits in several accounts. On the other hand, if for some reason you carry your checkbook with you and write checks for everything from groceries to haircuts and shoes, then you want to avoid at all costs a bank that charges for every check you write.

If you always have a lot of money in your checking account or a corresponding savings account, the bank might waive monthly fees. But if your account balance varies, or you don't keep much money in it, look out. You could end up getting hit with a big charge for going below your minimum balance requirement.

Be sure you find out some basic information about checking accounts from every bank you query. Ask about fees, minimum balances, interest rates, overdraft protection, and anything else you can think of that might be helpful to know.

After you've opened a checking account, or changed your account to a bank that offers a better deal, there are a few other things to keep in mind. One simple but important rule is to keep your checkbook in a safe place and report it immediately if it's lost or stolen.

You also must keep track of how much money you have in your account. If you don't, you risk bouncing a check. The average fee for bouncing a check these days is almost $30 per check, making it a very expensive mistake. Record every transaction immediately, or sooner or later you'll forget about one. Record the checks you write as well as ATM and debit card transactions. Always look over your statement each month and confirm all deposits, ATM transactions, and withdrawals. If you notice some-thing that doesn't look right, call your bank right away. Banks do make mistakes, and they're not always in your favor.

Savings Accounts

A lot of the same points we discussed about checking accounts apply when you're looking for a place to open a savings account. You'll need to figure out your savings habits and find a bank that has a deal that will best suit your habits.

Most banks will charge a monthly or quarterly maintenance fee and maybe an additional fee if your balance falls below a required minimum. In addition, you might be required to keep a savings account active for a specified time or face penalties.

When you're looking for a place to set up your account, review the list of questions suggested in the section on checking accounts, and ask those that apply to savings. You'll also need to ask a few other questions that apply to savings accounts:

Does the bank use a tiered account system?

Will I be penalized if I close the account before a certain time?

Is the account federally insured?

How much interest will I get on my savings?

Show Me the Money

A tiered account system means you'll earn higher interest if your account balance is consistently over an amount as set by the bank, usually at least $1,000, but many times higher. There are exceptions, but generally it's better to have your money somewhere other than in a savings account if you have a large amount. Still, it's nice to know what you'll be earning on the money in your savings account.

Although many banks don't pay interest on checking accounts, all banks pay interest on savings accounts. Banks used to pay 5 percent interest on all savings accounts because it was a federal regulation. Then along came banking deregulation in 1986, and interest rates haven't been the same since. Deregulation allowed banks to offer different kinds of accounts, which became competitive with each other and earned substantial interest. The higher interest on those accounts resulted in savings account interest rates being lowered.

Still, it pays to shop around because the amount of interest varies from bank to bank. In addition to www.bankrate.com, financial magazines such as Money publish lists of the highest-paying bank accounts each month.

Pocket Change

These days, the average savings account is earning 1.22 percent. Better than nothing, but not much to get excited about, is it?

Other Useful Accounts

Money market accounts (MMAs), which are considered to be a type of savings account, generally pay a bit more interest than regular savings accounts, although these days the difference is minimal. You can write a minimum number of checks (usually three) on the account each month.

Dollars and Sense

If you write only a couple of checks a month, a money market account might be worth considering. But there's usually a hefty fee if you write more than the number of checks permitted. Any additional interest will quickly be chewed up if you have to pay for extra checks.

If your savings account balance becomes substantial, that is, containing more money than you think you'll need anytime really soon, consider putting some of it in a certificate of deposit (CD). With a CD, you deposit money for a specified amount of time, usually from three months to a number of years. The longer you leave your money in the account, the more interest you should get on it. Interest rates on CDs are higher than those on savings accounts and money market accounts, but there's usually a penalty if you need to get the money out of the account before the agreed-upon time. Although there are variable (changeable) rate CDs, CD rates are usually set for the term of the certificate, while money market rates are changeable at any time.

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